For example if payroll is 1000 and the burden rate is

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Unformatted text preview: ownership; capital. Equity can be calculated as the difference between assets and liabilities. Expense Webster’s calls it “a spending or consuming; disbursement, expenditure.” What's important about expenses for the purpose of business accounting is that expenses are deductible against taxable income. Common expenses are rent, salaries, advertising, travel, etc. Questions arise because some businesses have trouble distinguishing between expenses and purchase of assets, especially with development expenses. When your business purchases office equipment, if you call that an expense then you can deduct that amount from taxable income, so it reduces taxes. F Fiscal year Standard accounting practice allows the accounting year to begin in any month. Fiscal years are numbered according to the year in which they end. For example, a fiscal year ending in February of 2007 is Fiscal 2007, even though most of the year takes place in 2006. Fixed costs Running costs that take time to wind down: usually rent, overhead, some salaries. Technically, fixed costs are those that the business would continue to pay even if it went bankrupt. In practice, fixed costs are usually considered the running costs. G Gross margin Sales minus cost of sales. Gross margin percent Gross margin divided by sales, displayed as a percentage. Acceptable levels depend on the nature of the business. I Interest expense Interest is paid on debts, and interest expense is deducted from profits as expenses. Interest expense is either long-term or short-term interest. Inventory Goods in stock, either finished goods or materials to be used to manufacture goods. HURDLE: THE BOOK G.4 ON BUSINESS PLANNING Inventory turnover Total cost of sales divided by inventory. Usually calculated using the average inventory over an accounting period, not an ending-inventory value. Inventory turns Inventory turnover (above). L Labor The labor costs associated with making goods to be sold. This labor is part of the cost of sales, par...
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